Mexico Issues Bond That Allows Easier Debt Renegotiation

The Secretaria de Hacienda y Credito Publico (SHCP) has issued an innovative bond on international debt markets that gives Mexico greater ease to negotiate with creditors in an economic crisis. Mexico issued US$1 billion worth of the bonds, which will be underwritten by J.P. Morgan and Goldman Sachs.

The bond contains "collective-action" clauses, which limit the rights of minority holders to block a debt- restructuring plan. The clauses are common in Europe but until now had not been used in the US markets. Bonds issued previously by Mexico required the unanimous consent of bondholders for a change in payment terms. The collective- action clauses allow a restructuring if 75% of bondholders approve.

Mexico and other countries had been reluctant to use these bonds because of concern they would have to pay higher-than-normal interest rates to attract buyers.

The SHCP said the decision to issue the bonds was more symbolic than practical. "This is more about sending a signal to the international markets than it is about reducing our borrowing costs," said SHCP spokesman Raul Martinez-Ostos.

Analysts said Mexico was able to issue the bond because the country was upgraded to investment-grade status by Standard & Poor's last year and by Moody's in 1999 (see SourceMex, 1999-08-18 and 2002-02-13).

US President George W. Bush's administration welcomed the Mexican decision. …

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